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Income-oriented investors, take note: The ingredients in some of the most popular preferred-stock trackers are shifting. Big banks are redeeming rich-yielding trust-preferred securities, which won't count as Tier 1 capital under new bank-supervision rules starting in 2013.

The good news is that there's no immediate danger that yields will fall. So far the trust preferreds are being replaced by securities with comparable yields -- typically above 6%. What is perhaps troubling is that these securities, which were issued hand over fist during the credit crisis to prop up banks' balance sheets, are effectively debt, meaning they are higher in the capital structure than traditional preferred. As they exit fund portfolios, you could be taking on more risk.

Trust preferreds are dropping as a proportion of a few key funds. They've fallen to 19% of the index behind the $290 million
SPDR Wells Fargo Preferred Stock ETFpsk 0.11128421989761851%SPDR Wells Fargo Preferred Stock ETFU.S.: NYSE Arca44.98
0.050.11128421989761851%
/Date(1427835600210-0500)/
Volume (Delayed 15m)
:
22105
P/E Ratio
N/AMarket Cap
N/A
Dividend Yield
3.329524232992441% Rev. per Employee
N/AMore quote details and news »pskinYour ValueYour ChangeShort position
(ticker: PSK), from about 30% early this year, according to Daniel Forth, head of strategic indexing at Wells Fargo Securities. "It's not different from what's happening generally in fixed-income markets," Forth says. "We're in an interest-rate environment where a lot of people are calling and tendering. It's the refi trade."

The appetite for these securities remains strong. Investors have plowed more than $2 billion into preferred-stock exchange-traded funds this year, XTF.com data show. Besides proving investors' everlasting hunger for yield, the fund flows are also chasing performance. The biggest exchange-traded fund, the $9.6 billion
iShares S&P Preferred Stock Index
Fund (PFF), is up 10% since the beginning of January, outpacing the Dow Jones Industrial Average.

The iShares fund could see more trust-preferred issues get called away later this year: Only about 20 have been redeemed so far in 2012, and trust preferreds from financial companies still make up more than a fifth of the portfolio. The iShares fund tracks the biggest number of preferred stocks of any ETF by far, at about 270. But because it reflects the bank-heavy universe of preferred stock, the fund is weighted heavily to the financial and insurance sectors, at about 75%. The index behind this fund added about 40 new securities last month.